Oil has risen nearly 70% since the election, a record in the modern era

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This is easily the biggest post-election gain at this point in the presidential cycle since NYMEX oil futures began trading in 1983, according to an analysis by CNN Business. The next post-election rally came when crude jumped 31% after President George HW Bush’s 1988 victory.

Gasoline prices are also rising, up 27% since the election, with the national average reaching $ 2.70 a gallon this week, according to AAA.
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“Higher oil prices are a reflection of optimism about economic growth as the world begins the vaccination process to move from the pandemic,” said Jason Bordoff, founding director of the World Energy Policy Center. Columbia University.

In recent months, the United States has made great strides in defeating Covid. Both of us Pfizer (PFE) i Modern (MRNA) launched highly effective vaccines late last year and, after a slow start, implementation has accelerated. The country could be just days away from accessing the first single-shot vaccine.

And as more Americans are vaccinated, they can fly again, travel by road and cruise, which in turn will increase the demand for oil crushed by the health crisis. Bank of America predicts it will grow by 2023 at the fastest pace since the 1970s.

The pandemic, combined with a nasty price war between Saudi Arabia and Russia, sparked the darkest day in the oil market last April. Crude crashed below zero, briefly hitting $ 37 negative per barrel.

The GameStop factor

But in the same way that sales were exaggerated, there are those who fear that the price pull may be getting out of hand.

“This sounds a lot more like a financial rally than a fundamental one,” Jim Mitchell, chief oil analyst at America, told Refinitiv. He estimated that oil prices in the United States are between $ 7 and $ 8 higher than supply-demand dynamics suggest they should be.

Think that demand for American gasoline, the main driver of oil prices, has not been so weak in February since 1997.

So why is overcoming oil essential? Easy money on Wall Street looking for a home. The Fed’s minimum interest rates encourage investors to bet on risky assets. All things Amazon (AMZN) and GameStop on bitcoin and the SPACs are on fire. It only makes sense for oil to join the party, especially because crude oil is a way to bet on higher inflation.
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“We’re increasing cash flow higher. But if the money keeps flowing, they look a bit like GameStop,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service.

In other words, gains can be unsustainable.

For now, Wall Street analysts are betting that the rally will just begin. Goldman Sachs now says U.S. oil prices will average $ 72 a barrel in the third quarter, up from the previous $ 62. Some investment banks are even calling for a new “supercycle” that could bring oil to $ 100.

“It’s very, very premature. It’s like when someone wins a sports championship and immediately starts talking about dynasty,” Kloza said.

The $ 3 gasoline risk

The risk is that energy prices will rise to levels that slow recovery by raising uncomfortably high costs for drivers.

“$ 3 per gallon gasoline is a number that catches the public’s attention, such as 100 baseball wins,” Kloza said.

While Kloza does not believe the national average will reach $ 3 a gallon this year, he warned that doing so will cause “irresponsible blame” on the White House and oil producers.

Others are skeptical that higher energy prices will keep Americans tired of quarantine off the roads and planes this summer.

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“If you get stuck at home for a year, you’re probably going to go on this vacation whether the oil is $ 40 or $ 90,” said Ryan Fitzmaurice, Rabobank’s energy strategist.

In any case, the current digital economy (less manufacturing, more electric vehicles and remote work) can support higher prices than in the past.

“The economy will be far away less sensitive to oil price movements than in our lives, “said Joe Brusuelas, chief economist at RSM International.” Many of us are still prisoners of the oil price shock of the 1970s. But we are far from various economies. “

OPEC, which was behind the shock of the 1970s, could soon add more barrels to the world market. The group, along with Russia, could decide next week to lower production limits from April. This could cool the hot market.

The last oil dance?

The current the concentration of oil comes at a time when energy policy in Washington is being transformed extremely after four years of the Trump administration, favoring fossil fuels.

President Joe Biden has moved quickly to address the climate crisis by rejoining the United States in the Paris Agreement, revoking the Keystone XL gas pipeline permit and ordering a moratorium on new oil and gas leases in federal lands and waters. These steps amount to a shot across the bow of the oil industry and could eventually depress fossil fuel production in the United States.
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However, analysts are skeptical that the current concentration is directly related to the administration’s oil repression. Crude has risen 20% more modestly since Trump’s last day in office.

“Biden’s climate policy has nothing to do with the current rise in oil prices,” said Bordoff, the Columbia professor who served as an energy adviser during the Obama administration.

But the climate crisis and electric vehicles remain real threats to oil.

In a report titled “Oil’s Last Dance,” Bank of America recently predicted that electric vehicle sales will reach 34% of total vehicle sales by 2030 and exceed gas-offering vehicle sales by 2035. The bank expects that global oil demand will peak around 2030.

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